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Five Dow Stocks With Rising Short Activity

The most recent short interest data has just been released by the NASDAQ for the 06/13/2014 settlement date, and we here at Dividend Channel have sifted through this fresh data and screened out these five Dow Jones Industrial Average components. A metric we find particularly useful when comparing short interest data is the “days to cover” metric because it considers both the total shares short and the average daily volume of shares traded. For the five stocks below, we have detected a notable change in days to cover, not just from the prior reporting period but also going back a full month. The table below summarizes what we found, with the five columns showing data for each of the five stocks, and the rows showing the days to cover values first from the 05/15/2014 reporting period, then the most recent 06/13/2014 reporting period, followed by the change and percentage change:

At UnitedHealth Group (UNH), average daily volume at the 06/13/2014 settlement saw a decrease to 2,794,019, as compared to 4,024,513 at the 05/15/2014 report. That brought days to cover up to 7.35, a 64.90% increase from the 4.46 days to cover calculated at the 05/15/2014 settlement date. Looking at total shares short, there was a 2,598,581 share increase to 20,541,172, a rise of 14.48% since 05/15/2014. The below chart shows the historical days to cover for UNH at previous short interest release dates:

Meanwhile at Walt Disney (NYSE: DIS), average daily volume at the 06/13/2014 settlement moved lower to 5,208,910, as compared to 7,441,679 at the 05/15/2014 report. That brought days to cover up to 7.40, a 51.01% increase from the 4.90 days to cover calculated at the 05/15/2014 settlement date. Looking at total shares short, there was a 2,080,193 share increase to 38,543,997, an increase of 5.70% since 05/15/2014. The chart below shows the historical days to cover for DIS at previous short interest release dates:

Over at Merck (MRK), average daily volume at the 06/13/2014 settlement decreased to 8,013,666, as compared to 11,745,934 at the 05/15/2014 report. The resulting days to cover value was up to 4.15, a 58.78% increase from the 2.61 days to cover calculated at the 05/15/2014 settlement date. Looking at the running total of all outstanding shorted shares, there was a 2,557,739 share increase to 33,266,511, a 8.33% increase since 05/15/2014. The below chart plots the historical days to cover for MRK at prior short interest release dates over time:

At Travelers Companies (TRV), average daily volume at the 06/13/2014 settlement declined to 1,797,322, as compared to 2,151,672 at the 05/15/2014 report. The days to cover calculation moved up to 5.17, a 37.64% increase from the 3.75 days to cover calculated at the 05/15/2014 settlement date. Looking at the total of all open short positions, there was a 1,208,959 share increase to 9,284,316, a 14.97% rise since 05/15/2014. The chart below shows the days to cover over time for TRV at previous short interest release dates:

And at Wal-Mart Stores (WMT), average daily volume at the 06/13/2014 settlement decreased to 5,039,920, as compared to 5,978,098 at the 05/15/2014 report. That brought days to cover up to 6.32, a 27.90% increase from the 4.95 days to cover calculated at the 05/15/2014 settlement date. Looking at total shares short, there was a 2,313,581 share increase to 31,876,051, an increase of 7.83% since 05/15/2014. The following chart plots the historical days to cover for WMT at previous short interest release dates over time:

An increased “days to cover” value could indicate that short sellers are using these stocks to hedge long bets elsewhere, or could also mean that short sellers believe the stocks will decline in price. When short sellers eventually cover their positions, by definition there must be buying activity because a share that is currently sold short must be purchased to be covered. So investors tend to keep an eye on that days to cover metric, because a high value could predict a sharper price increase should a company put out some unexpectedly good news — short sellers might then rush to cover their positions, and if the days to cover number is high, it would then be more difficult to close those positions without sending a stock higher (until the higher price produces enough sellers to generate the necessary volume the short sellers need to close their positions).

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